in NEW YORK
Shares of Chrysler Corporation soared on Wall Street last night as its former boss, Lee Iacocca, joined the reclusive US billionaire Kirk Kerkorian to announce a takeover bid for the US car giant worth more than $20bn (£12.6bn).
The takeover would be the second-biggest in American corporate history, coming second only to the $25bn buyout of RJR Nabisco by Kohlberg Kravis Roberts in 1989.
There remained doubts, however, about the seriousness of the bid, announced by Mr Kerkorian's Las Vegas-based Tracinda Corporation.
Mr Kerkorian already holds 10 per cent of Chrysler, the number three American car manufacturer after General Motors and Ford. Tracinda said it was offering $55 a share, valuing the company at $22.8bn and representing a 40 per cent premium on the Tuesday closing price of $39.25 a share. The shares climbed to $50 on Wall Street yesterday.
Tracinda said that Mr Iacocca would join Mr Kerkorian as a "substantial investor in this transaction". Mr Iacocca said he would not resume his old job at the car group. He attained legendary status in corporate America by rescuing Chrysler from virtual oblivion in the 1980s before leaving in 1992, since when the company has been thriving.
Uncertainties about the deal rested with the absence of any detail on how it would be financed. Nor by last night had Chrysler received any written notification from Tracinda. Some analysts wondered whether Mr Kerkorian might be trying to pressure Chrysler into buying back his stock, while others argued that the Detroit company was worth more than $55 a share.
"This is the biggest bombshell we have ever had in the stock market," Joseph Philippi, a car industry analyst with Lehman Brothers, said, noting that Tracinda had said the transaction would not be leveraged by the sale of assets.
But he added: "If you want to work through the fundamental analysis and look at the kind of multiple this company deserves, it's worth more than $55 in the longer term as a going concern."
Chrysler itself, however, appeared to be taking the development seriously. Bob Eaton, Mr Iacocca's successor at the company, was due to give a breakfast address at the New York car show yesterday morning, but cancelled to return to Detroit. The company is looking for a strategy adviser.
After years of painful restructuring, all three US manufacturers have enjoyed buoyant profits and record output in the past 12 months. Only in the first quarter of this year has there been any sign of the boom turning back down. Chrysler's first-quarter earnings for 1995, due out today, are widely expected to show a softening over 1994's performance.
Last year, Chrysler earned $3.7bn, its most profitable year in history. Its turnaround against strong Japanese competition has been due in part to its strong presence in the mini-van market and the popularity of its Jeep Cherokee models. Mr Kerkorian has long been known to feel frustrated with the relatively low price of Chrysler stock on the market, however.
In its statement yesterday, Tracinda said: "We think that Chrysler shareholders will welcome our offer which enables them to realise significantly increased value for their stock".
Tracinda indicated it would be sending a formal letter of notification of its bid to Chrysler late last night or this morning.
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